Hancock LTC Rate Hike Rattles Producers

Long term care distributors across the country were sent reeling on September 20th, when John Hancock Life Insurance Company announced an average 40% rate hike for most of its in-force LTC policies. Hancock told its distributors it would be filing for increases for in-force LTC policies in all states in September and October. Depending on the product, rate hikes submitted to state regulators range from 17% to 72%, according to an agent who attended a telephone conference where Hancock, a division of Manulife Financial Corp., announced its increase.

Reactions among LTC distributors to the increase ranged from shock to grim acceptance. “We simply have not sold he masses,” said Phyllis Shelton, president of LTC Consultants and LTCi-Training.com, of Hendersonville, Tenn. “If we had, the risk would be spread more evenly, and the insurance would cost less for everyone.”

At that same teleconference, Marianne Harrison, president, John Hancock Long Term Care also announced Hancock had suspended sales of group LTC insurance policies as it reviews its claims in that market.

The increase “doesn’t bode well” for the LTC insurance industry, observes Peter S. Gelbwaks, president of Gelbwaks Executive Marketing Corp., Plantation, Fla.

Gelbwaks also says, however, he thinks the rate hike was necessary and points out that in the past few years, a number of LTC carriers have raised rates for in-force policies.

“90% of Americans still haven’t purchased a [LTC] policy, one reason being it’s too pricey,” Gelbwaks says. “At the same time, the experience of the industry is proving, based on usage, that the products are actually underpriced. We need to reevaluate where we stand and look at product offerings more closely,” he says.

If Americans think the product is overpriced, the industry needs to show them otherwise, he says. “We have to change our message and tell people it’s such a good buy because people are using it. We are paying millions in benefits.”

He predicts that single-premium LTC product sales will get a large boost as people look for guaranteed rates for coverage.

Another agency principal says the top concern is to keep the product financially healthy and sustainable over time.

“Advisors who sold these policies are not going to be happy, because they didn’t anticipate the increase,” says Tom Riekse Jr., managing principal at LTC Insurance Partners L.L.C., Libertyville, Ill., a brokerage general agency. “To Hancock’s credit, although premiums are going up, they are paying $1.5 million in claims a day.”

Cameron Truesdell, chief executive of LTC Financial Partners L.L.C., Kirkland, Wash., thinks meager investment returns have hit all insurers far harder than anyone would have thought possible.

“It used to be a reasonable assumption they’d get an investment yield of 5%. Instead, it’s been 2%,” Truesdell says. “The consumer got one heck of a deal for 20 years.”

Agents get skittish when carriers raise rates, Truesdell observes, but his experience has been that lapse rates following in-force increases have totaled no more than 1% of policies. (One reason that is the case is because when LTC carriers raise in-force rates, they allow policy owners to convert to a policy with reduced benefits–as Hancock is doing with its latest increase.)

“LTC insurance really is entering a stage of new realities,” adds Jesse Slome, executive director, Association for Long Term Care Insurance, Westlake Village, Calif. “Basically, more people are going on claim, claims are lasting longer, and insurers’ investment returns are lower than ever. You have the triple whammy.”

Slome adds that LTC insurance agents should view the increase as both good news and bad news. “The good news is that more people are using it than expected, they’re on claim longer and they’re being paid more money,” he says. “The bad news is that because claims are so much higher, premiums are more costly.”

Hancock says the increases were not a result of the recent poor economic climate. Rather, its decision was based on a recent extensive claims study that examined LTC morbidity and claim trends based on actual experience. The last time Hancock undertook a thorough LTC claims review was in 2006.